Statistics show that over 65% off all small businesses use credit cards on a regular basis; but the problem is less than half of those credit cards are actually in the business name. The others continue to use the owner’s personal credit cards for business transactions.
Using your personal credit, also known as you’re “Consumer Credit Profile,” instead of establishing Business Credit is a bad idea on many fronts.
Here are my ‘Top 4 Reasons Why You Should Not Use Personal Credit for Business.’
Reason 1
It impacts your personal debt to credit limit ratios, credit scores, and personal finance capacity for you and your family.
This reason alone has caused severe personal credit damage and liability to small business owners across the country who have lost their businesses due to the recession and have used personal credit and personal guarantees for all their business financing. Just ask Kirk Brown, owner of Buck’s Shoes in Fremont, who knows firsthand what using personal credit for business can do.
When you properly separate your personal credit from business credit the debt you accumulate for your business should only report to your business credit file not your personal credit file. More importantly you protect you and your family from personal liability when you get approved solely on your businesses’ credit file.
Reason 2
When you use your personal credit for the benefit or operation of the company it can lead to an “alter-ego” decision by regulatory or a financial organization, and a piercing of the corporate veil.
This would directly endanger the owner’s personal assets and make the owner or owners directly liable for the penalties or repayment of any debts incurred by the business or corporation.
It’s always a good idea to build business credit rather than abandon it through the co-mingling of funds–and this includes the “co-mingling” of credit profiles.
Many entrepreneurs believe that a corporation protects them because corporations are viewed as separate legal entities but you can jeopardize that protection when you use personal credit for the benefit or operation of your corporation!
Reason 3
Another disadvantage of using your personal credit in place of proper business credit is the fact that the use of personal credit for the operation of a company can make your company appear improperly funded or operated, or may incorrectly establish that your business credit is unstable, unreliable, or overextended.
Reason 4
Last but not least what might be perfectly normal and acceptable for a business credit profile, such as submitting multiple applications for business credit, can have a serious negative impact on personal credit because of what’s called excessive inquiries.
Solution:
Start building business credit for your corporation separate from your personal credit and improve your company’s image, protect you and your family’s assets, credit capacity, and personal liability.
Remember – To be prepared is half the victory. ~ Miguel De Cervantes
Marco Carbajo
About the Author
Marco Carbajo is a business credit specialist, author, speaker, and founder of the National Entrepreneur Club. Click here to visit his blog and signup free to get strategies, resources, and response-boosting tips with blog updates, news, and more! To start building business credit join his business credit community today and Click Here.